Margin squeeze, decreasing earnings growth and lack of significant capex plans do not seem to bother the Indian brokerages liking the Reliance Industries' stock.
Brokerages, in their third quarter updates to clients, are confident that RIL's buyback offer at Rs 870 a share (maximum price) has come at the right time and will surely support the stock's price.
Emkay Global and Prabhudas Lilladher said it was the right time to start accumulating the RIL scrip. This was despite its refining margin trailing the benchmark Singapore's refining margin in the third quarter of FY12.
Brics Securities reiterated a buy call on RIL while rating agency Crisil affirmed its BBB positive rating on RIL stating that the company had strong liquidity due to cash and cash equivalents of Rs 74,500 crore. Hence the drop in earnings and buyback would not affect RIL's credit rating, it said.
Circumspect
Foreign brokerages were circumspect in their rating of RIL.
BofA Merrill Lynch observed that refining margins were the key to the stock performing well. And given the downside risks of lower margins, softening crude, seven-year tax holiday on gas production being disallowed and large acquisitions that were value diluting, the outlook on RIL was neutral.
Morgan Stanley has raised its target price on RIL factoring the buyback, though it is underweight on RIL and cautious on the industry.
HSBC Global research indicated a neutral view on the stock stating that the weakness in price will continue ahead of a ramp up in gas production in FY14.
On Monday, RIL scrip closed at Rs 771.55, a fall of 2.82 per cent, over the previous day's close.